Saturday, February 10, 2007

Real Estate and Development

Real Estate and Development
For a true picture, look past the statistics
By Brian Wargo / Staff Writer
When it comes to the price of land in the Las Vegas Valley, Derek Rafie said he's telling clients to look beyond the statistics.
Rafie, a first vice president of the land services group at CB Richard Ellis in Las Vegas, said media accounts last week portraying the price of land jumping 78 percent in the Las Vegas Valley during the past year has left some explaining to do with clients who have been sitting on the sidelines waiting to purchase property.
The clients didn't make a mistake by not jumping in and avoiding paying steeper prices later, Rafie said. Instead, he tells them the raw numbers don't tell the true picture.
The price per acre of all land transactions during the fourth quarter rose 78 percent over the same quarter in 2005 as reported by consulting firm Applied Analysis.
That number, reported in a Review-Journal news story, can't be taken at its face value because it includes resort property, Rafie said. Excluding that transaction, the percentage rose only 24 percent over the previous year, he said.
But even that number is deceiving and doesn't tell the whole story of what's happening in the land market, Rafie said.
There were only 572 acres sold during the fourth quarter, which is down about 70 percent from the number of acres sold in the fourth quarter of 2005. With such a small sampling, it's hard to view the numbers and come away with a clear understanding of the market, Rafie said.
Someone looking to purchase land has to look at apples-to-apples comparisons of properties from year-to-year. You have to compare office land to office land and not residential property sold in one quarter to office land sold in another, he said.
"When you lump everything together, especially when you have gaming property, it looks like a large appreciation when it really wasn't," Rafie said.
The market has to be viewed through the various property classifications, Rafie said.
In the office market, prices have remained about the same for the last 8 to 12 months because of the expectation that there will be a glut of office space in the next year with a number of projects coming on line, Rafie said.
The only people acquiring office land are long-term developers from outside Nevada who "can hold it and weather the storm," he said.
"Right now, I am not sure landowners understand the value of their properties have decreased," Rafie said. "There is a softening. If you need to sell your property in the short term, you have to discount your price."
While that's true about office property, that's not the case for industrial properties where a low vacancy rate has increased the demand for the scarce land, Rafie said.
In the Southwest, property owners are asking for $22 a square foot and getting $16 to $18 for industrial, Rafie said. A year earlier, it was $13 to $14 a square foot in that area.
Few can afford to pay the higher prices. The exceptions are some displaced tenants and those companies who need to be located in the southwest because of its proximity to the freeway and California and ability to service the gaming industry. They hope to offset the high land costs in fuel savings by being elsewhere in the valley, he said.
The biggest appreciation in land prices is the industrial market in North Las Vegas, Rafie said. In the past year, the price has gone up from $6 a foot to $10 to $12 a foot near the Las Vegas Motor Speedway.
In the retail market, developers are willing to pay a premium for a site if it's in a great location where it is surrounded by rooftops but there are few of those properties to be found, Rafie said.
Retail land prices are holding steady for the most part, Rafie said. The problem with retail, as with other property types, is that developers can only charge so much in rent for the projects to be feasible.
As for properties within a mile of Strip with a mixed-use designation that combine retail with residential uses, especially high rise, those prices also remain flat, Rafie said.
Land owners with that zoning are trying to market those properties, but there are not takers right now, he says.
Unless you have experience as a developer, loans aren't available to purchase those properties, Rafie said.
"There were over 120 projects planned at one point, and it looks like we are only going to get 20 built," Rafie said.
If developers are looking for mixed-use land, they are looking farther away from the Strip where they can keep housing prices down in four-to six-story units that are more affordable, he said. Some companies have been aggressive in seeking out those properties, he said.
"We need to create a lower-cost alternative. That's why if you are going to do a condo project, you need to keep the price down as low as you can," Rafie said.
Over the course of his career, Rafie said he always thought land prices have hit their limit, only to be proven wrong. He said he doesn't want to make that same prediction now but said something has to give because land is only worth what end users can sell and lease it for.
"If you look at some of the markets like New York, they make it work," Rafie said. "The reality of Las Vegas and Southern Nevada is that we are surrounded by federal land."
Rafie said he believes Las Vegas will be more like Southern California where companies and residents look to cheaper land alternatives in the Inland Empire. That means more development on lower-cost land in Pahrump, Northern Arizona and other areas 45 minutes to an hour from Las Vegas, he said.
Applied Analysis had several interesting findings in its fourth quarter land sales report in which it compared the quarter to the same period in 2005. Among the findings:
The northwest reported average sales prices of $626,000 per acre, an 11 percent increase over the previous year. That included several residential-lot sales.
Parcels changing hands in the north portion of the valley totaled 104 acres, which was one-fifth of the activity in the previous year. Prices were $424,000 an acre, a 15.7 percent decline from 2005.
Prices in the northeast rose nearly 33 percent compared to 2005. The average price per acre was $391,000. The prices are attracting developers and speculators given high costs elsewhere.
The west had an average price of $943,000 per acre, a 10.5 percent increase. That included the sale by Howard Hughes Properties of 14 acres of high-density residential land along West Charleston Boulevard.
The central and east reported average values of $813,300, a discount over 2005 when there were more high-density residential transactions.
Valuations in the southwest averaged $665,000 per acre, a 7.3 percent discount over last year.
The airport and south had an average price of $2.3 million, which included land between Las Vegas Boulevard and I-15, north of the Blue Diamond Road interchange.
Southeast Las Vegas and Henderson reported average sales prices of $500,000 an acre, down 26 percent from 2005.

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